Do you feel like you need extra income, but don’t have time for a second job? If you are working full-time, you may feel locked into the schedule that you have. However, that doesn’t mean that you can’t have a secondary job to bring in additional income. We live in a gig economy, and starting your own business is easier than ever. Take a look at how starting a side hustle can help crush your debt and put you in a better financial position.
Pay off your mortgage
A side hustle can help you pay off your mortgage early by making extra payments each month toward interest. For instance, you can take your side hustle income and pay an extra $100 per month toward interest on your mortgage. Depending on your interest rate, you cut 3-5 years of payments off the term of your mortgage, saving you tens of thousands of dollars in payments and interest overall.
Pay down credit card debt
Credit cards are revolving debt. Unlike your mortgage, which compounds monthly, credit card interest compounds daily. This compounding effect causes the interest of credit cards to accumulate very quickly and continue to increase. So, if you are just making minimum payments toward credit cards, you probably won’t see the balance decrease much. Using the extra income from your side hustle to pay extra money each month towards credit card debt will start reducing the principle amount and get you debt-free quicker.
Save on taxes
Besides bringing in extra income for yourself and your family, a side hustle also gives you the benefit of additional tax deductions. Because having your own side business opens you up to additional deductions at tax time, you may likely pay less in taxes overall. If you get a refund back, you can also use this additional money to help pay down your mortgage or credit cards. Of course, you will need to consult your accountant or financial advisor to see what new or additional deductions may be available to you.
Put that money towards retirement
Once you have been able to crush your debt and get it paid off, you will have extra money to put towards a more secure financial future. At this point, you can save in several ways:
- Savings account—even though interest rates are still relatively low, you can always build up your cash reserves to have quick access for emergencies or other expenses.
- Investment account—instead of just stashing that money in the bank, earning interest at a low rate, you can opt to invest in the stock market. The threshold to earn is quite a bit greater, however there are risks involved. You should talk with your financial advisor about your goals and risk tolerance to decide on the proper investments for your situation.
- Traditional IRA/Roth IRA—an IRA is an Individual Retirement Account. A traditional IRA will give you a tax break now, but you will pay taxes on the growth when you withdraw the funds. A Roth IRA will not give you a tax break now, however, it will give you tax-free growth. So you won’t have to pay taxes on the money when you withdraw it during retirement.